H. 04:15 - UBI Banca: binding offer for the purchase of the 3 Target Bridge Institutions

BINDING OFFER APPROVED FOR THE PURCHASE OF 100% OF THE SHARE CAPITAL OF NUOVA BANCA DELLE MARCHE, NUOVA BANCA DELL'ETRURIA E DEL LAZIO AND NUOVA CASSA DI RISPARMIO DI CHIETI (the "Target Bridge Institutions") THE OFFER ADDRESSED TO THE NATIONAL RESOLUTION FUND ("the Offer) THAT OWNS THE TARGET BRIDGE INSTITUTIONS, WILL BE VALID TILL THE 18 JANUARY 2017 INCLUDED THE OFFER ENVISAGES THE DISPOSAL WITHOUT RECOURSE OF APPROXIMATELY €2.2 BILLION OF GROSS NON-PERFORMING LOANS BY THE TARGET INSTITUTIONS (APPROX. €1.7 BILLION OF GROSS BAD LOANS1 AND €0.5 BILLION OF GROSS UNLIKELY-TO-PAY LOANS) TO BE COMPLETED BEFORE THE CLOSING FOR THE TRANSACTION THE 3 TARGET BRIDGE INSTITUTIONS MUST PRESENT THE FOLLOWING RELEVANT PARAMETERS ON AN AGGREGATE BASIS (WITH A TOLERANCE THRESHOLD OF 5%)

• net equity book value on the reference date of at least €1,010 million, that factors in the following:

  • a coverage ratio of at least 28.28% for gross unlikely-to-pay loans and 60% for gross bad loans;

  • recognition of restructuring costs amounting to €130 million;

  • a provision representing the fair value of contracts connected with real estate property transactions ("Consorzio Palazzo della Fonte" and "Fondo Conero"), quantified at a maximum of €100 million, subject to potential reassessment;

  • additional provisions for risks and impairment of components of the Target Bridge Institutions' assets, quantified at €100 million.

• RWAs (Pillar 1) not greater than €10.6 billion;

• an average weighted Liquidity Coverage Ratio greater than 100%;

• an average weighted CET1 ratio not lower than 9.1%.

Abiding to the Offer, moreover, it is envisaged that the Seller makes a commitment to recapitalise the Target Bridge Institutions for an amount estimated at €450 million prior to the Closing date.

PRICE: €1

1. Of which approx. 0.7 billion Euro are being transferred to bad loans from other deteriorated loans

   THE TRANSACTION FOR UBI BANCA
   • Share capital increase

     In order to maintain the fully loaded CET1 ratio of the Combined Entity at a level greater than 11% immediately from 2017, consistent with the current level, the transaction involves an increase in the share capital by up to a maximum of €400 million designed both to meet the temporary requirement resulting because the "badwill" (defined by convention as the difference between the price of one euro and the positive equity, calculated at fair value2) is not fully eligible.

     Following the progressive release of the badwill through profit and loss, the expected profitability of the Target Bridge Institutions, the use of tax assets and the expected roll-out of internal models, from 2019 the fully loaded CET1 ratio will be greater than the targets set in the UBI Business Plan, standing at 13.5% in 2020 compared with a target of 12.8%. That level implies a generation of CET1 capital that is greater than the share capital increase.

     The capital increase will be effected by way of a pre-emptive issue of equity to existing shareholders. Credit Suisse e Morgan Stanley will act as Joint Global Coordinators and Joint Bookrunners (the "Joint Global Coordinators") in the context of the capital increase. The Joint Global Coordinators have entered into a pre- underwriting agreement with UBI Banca pursuant to which they have undertaken, on terms and condition in line with market practice for similar transaction, to enter into an underwriting agreement for the subscription of any newly issued shares that remain unsubscribed at the end of the auction period of the offering, for a maximum amount equal to the capital increase amount.

   • Sound business, operating and financial rationale

   • an increase in overall market share of over 1% (both in terms of lending to businesses and households - net of bad loans - and in terms of direct funding), corresponding to a market share higher by 20% compared to the current one, also consolidating the Group's market coverage in geographical areas in which it is not present or is only partially present (as at 30 September 2016, approximately 900,000 customers, €14.2 billion of gross loans (net of the disposal of non performing loans before the closing date), €18.5 billion of direct funding, €7.5 billion of indirect funding);

   • as a consequence of the expected reduction in loan losses, of operating cost synergies and of lower funding costs, a contribution of over €100 million in terms of ordinary net profit is estimated in the financial year 2020 by the Target Bridge Institutions, with an expected positive impact on the Group's ordinary profitability and a return of 25% on the maximum amount of €400 millio n for

     UB I Banca's share capital increase .

   • further benefits resulting from:

2. On the basis of preliminary analysis effected in the due diligence, the so-called "badwill", defined according to convention as the difference between the price of €1 and the positive equity, measured at fair value, on the basis of the purchase price allocation process, would be partly allocated to the assets and liabilities acquired (identified and measured at fair value) and partly recognised as a positive component of the income statement and as a positive item of regulatory capital. As an indication, on the basis of those preliminary analysis, an amount estimated preliminarily in a range of between 40% and 60% of "badwill" will be allocated to the fair value of the assets and liabilities acquired.

   Following the initial process of the purchase price allocation, the fair value allocated to assets and liabilities will be progressively recognised through profit and loss with a positive impact on the basis of a release plan that is consistent with an estimate of the maturity of the items to which it relates (i.e. "badwill reversal").

   • UB I Banca's eligibility to use the deferred tax assets (over €600 million of DTAs) on the prior year tax losses of the Target Bridge Institutions: on this matter, a recent tax ruling confirmed that UBI is allowed to use such deferred tax assets;

     A profit-sharing mechanism has been agreed in relation to that use which involves payment to the Seller of total amount equal to 10% up to €600 million and to 80% for the part above that amount. The profit sharing only becomes payable when UBI Banca achieves the actual cumulative financial benefit. The relative amount will be deposited in an escrow account and will be paid to the Seller following satisfaction of any indemnity obligations;

   • badwill reversal3

   • the roll-out of advanced models on the Target Bridge Institutions perimeter;

3. as a result of the transaction, the ROTE of the Combined Entity (UBI Banca + Target Bridge Institutions) is estimated to rise, in 2020, from 10.6% to over 12.5%.

   • low risks

• the Target Bridge Institutions have been newly formed following the intervention by the Resolution Fund in November 2015 which, amongst other things, involved the transfer of bad loans on the books of the original banks to REV- Gestione Crediti SpA.

  Furthermore, as part of the Transaction:

• there will be a precise verification that the Relevant Parameters mentioned above are satisfied, in the absence of which UBI shall have the right to withdraw from the purchase agreement according to the provisions of the Offer;

• the disposal without recourse of approximately €2.2 billion of gross non- performing loans is envisaged before the Closing, which will more than halve the level of the Target Bridge Institutions' non-performing loans. Coverage of the remaining unlikely-to-pay loans will be at least 28.28%, and that of bad loans at least 60%;

• further provisions have been posted to meet risks detected;

• specific obligations have been set to discipline terms and modalities for the transfer of risks and benefits connected to loans pertaining to the REV perimeter and to actual or potential litigation relating to those loans;

• adequate guarantees and waivers have been granted, also by drawing, amongst other things, on the escrow account mentioned above, for possible risks of a legal, tax, accounting and labour law nature, ecc..

* * *

CONFERENCE CALL: a conference call is scheduled for 3 p.m. CET, Thursday 12th January 2017, to present the Offer and the Transaction. The Call will be held by Victor Massiah, CEO of UBI Banca. The details to access the call are reported at the foot of this press release. * * *

4. Please see note 2

Milan, 12th January 2017 - on the basis of a proposal made by the Management Board, UBI Banca's Supervisory Board resolved to make a binding Offer (the "Offer") to the National Resolution Fund (the "Seller") to purchase 100% of the share capital of Nuova Banca delle Marche S.p.A., Nuova Banca dell'Etruria e del Lazio S.p.A. and Nuova Cassa di Risparmio di Chieti S.p.A., inclusive of the relative subsidiaries, (hereinafter the "Target Bridge Institutions"), under the terms and conditions given below (taken as a whole the "Transaction").

The Offer will be valid till the 18th of January 2017 included and, if accepted by the "Seller", the Transaction is expected to be completed indicatively within the first semester of 2017 (the "Closing") once the conditions precedent for the Transaction are satisfied.

* * *

THE MAIN TERMS AND CONDITIONS OF THE TRANSACTION ACCORDING TO THE OFFER
1. The perimeter of the Transaction

   The Offer regards the purchase by UBI Banca of 100% of the share capital of the Target Bridge Institutions, subject to the prior disposal without recourse, to be completed before the Closing date of the Transaction, of approximately €2.2 billion of gross non- performing loans (€1.7 billion of gross bad loans4 and €0.5 billion of gross unlikely-to- pay loans).

2. Price and conditions for the Transaction

   The purchase price for the entire share capital of the Target Bridge Institutions is set in the Offer at €1. The Transaction is subject to the essential condition that, on an aggregate basis, the Target Bridge Institutions report the following Relevant Parameters approved by the respective Boards of Directors:

   • net equity book value on the reference date of at least €1,010 million, that factors in the following:

     • a coverage ratio of at least 28.28% for gross unlikely-to-pay loans and 60% for gross bad loans;

     • recognition of restructuring costs amounting to €130 million;

     • a provision representing the fair value of contracts connected with real estate property transactions ("Consorzio Palazzo della Fonte" and "Fondo Conero"), quantified at a maximum of €100 million, subject to potential reassessment;

     • additional provisions for risks and impairment of components of the Target Bridge Institutions' assets, quantified at €100 million, following due diligence results.

   • RWAs (Pillar 1) not greater than €10.6 billion;

   • an average weighted Liquidity Coverage Ratio greater than 100%;

   • an average weighted CET1 ratio not lower than 9.1%.

The Offer, moreover, provides for the Seller to make a commitment to recapitalise the Target Bridge Institutions prior to the Closing date, estimated at €450 million.